Hampered by housing
Franchisees battle slowing residential market
|The slowdown in housing is taking its toll on franchise groups that cater to the residential real estate market. But many companies are finding creative ways to survive.|
A slowing housing market is putting the squeeze on Realtors and other franchise groups that cater to the residential market. Yet many franchise groups are finding creative ways to not only weather the current storm, but also to position themselves for long-run growth.
Tighter lending criteria coupled with fallout from sub-prime loans is expected to lead to lower home sales in 2007. The National Association of Realtors is forecasting existing-home sales of 6.34 million in 2007—down from 6.48 million in 2006. New housing starts are expected to reach 1.47 million in 2007 compared to 1.80 million units in 2006. At the same time, the national median existing-home price is expected to remain relatively flat with a 0.4 percent increase to $246,000, which is a nominal gain compared to the 1.8 percent increase in 2006, according to NAR.
Perhaps because the housing market has had such a phenomenal run in recent years, the flat and declining numbers surfacing in many parts of the country is packing quite a punch for firms that service the housing niche. Negative impacts for franchise groups include slowing franchise expansion, lower sales and cost cutting that may translate to fewer agents or other staff. Tougher market conditions also could lead to more consolidation and business closures.
“The implosion of the sub-prime lending market has had a negative impact on our business,” notes John P. Hayes, president and CEO of Dallas-based HomeVestors of America Inc. HomeVestors currently has 260 franchised outlets in more than 30 states. “People at the lower end of the buying spectrum are struggling more than they have in recent years to find the financing to buy properties.” HomeVestors is a franchise network that specializes in buying properties at a discount from people who are often in transition due to foreclosure or divorce. Ideally, franchisees sell those properties for a profit.
For most of HomeVestor’s 11-year history, the company has focused on helping its franchisees purchase rather than sell its properties. “But in the last year, we have added numerous training components and marketing campaigns aimed at helping our franchisees sell properties faster, and we will continue doing so,” Hayes says.
One HomeVestors initiative that has given the network a significant boost is an alliance that the company has developed with Bank of America, which offers low-cost financing to first-time home buyers. The program is part of Bank of America’s community enhancement program. Since January the bank has completed more than $5.5 million in loans through HomeVestors franchisees.
Surviving the slowdown
The slowing residential market, coupled with soaring property taxes, has sent home sales plunging a whopping 30 percent in Tampa. Realtors such as Jeff Shaw have been working hard to bolster sales in a flagging market. “Our business is down some, but not nearly as far down as the overall market,” says Shaw, broker-owner of Century 21 Shaw Realty Group. The company currently has six offices and 300 agents serving four counties in and around Tampa.
Yet even though its sales are down, Shaw Realty is being rewarded with a growing market share. “We have not had to cut our marketing dollars or the number of agents. What we have done is spent a tremendous amount of time on retraining our agents,” Shaw says.
The challenging housing market has put more emphasis on marketing, technology and ongoing education, agrees Jim Gillespie, president and chief executive officer at Coldwell Banker Real Estate Corp. in Parsippany, N.J. “Our educational teams are working hard on providing back-to-basics type courses because so many real estate professionals have never worked in a down market until now,” he says.
Two key programs at Coldwell Banker include its six-day CEO Series Leadership Program at the Wharton School at the University of Pennsylvania for key leaders of Coldwell Banker-affiliated companies and Blueprint for Profitability for branch managers. “We also have an experienced group of business consultants in the field working with owners on all aspects of their business, including budgets,” Gillespie says.
Poised for growth
Many franchisees are persevering despite the sluggish residential market. In fact, slowing home sales is actually benefiting some franchise groups that service the residential market. “It quite conceivably could be enhancing our business,” says Scott Hind, vice president of residential markets at Vancouver-based Driveway Impressions. The company specializes in decorative driveway products such as brick and cobblestone. “If the market is tough for selling someone’s property, our product helps differentiate their house by improving the curb appeal,” Hind says. The company currently has one corporate unit and five franchise units.
“We certainly keep an eye on the slowing activity in the residential market, although we are less impacted than others,” says Tom Fenig, founder and CEO of Charlotte-based Outdoor Lighting Perspectives. One reason is because rather than selling or upgrading a home, owners are opting to make improvements such as incorporating Outdoor Lighting’s exterior lighting systems. Other homeowners are adding exterior lighting systems as a selling point to help their home sell, he adds.
In addition, Outdoor Lighting is focused on finding other revenue streams for its franchisees, such as adding automation and repairs to its list of services. The company also plans to roll out a new commercial product line. Outdoor Lighting Perspectives currently has 80 locations, including new locations in Ireland and the Bahamas.
Ironically, a number of franchise groups are viewing the downturn as a time to strengthen their position in the market. “We believe strongly that a down market is a great time for our franchisees to grow their businesses,” Gillespie says. For example, Coldwell Banker has conducted several merger/acquisition programs to help franchisees who are interested in growing their businesses. “Many of our franchised companies, in both big and smaller markets, are strengthening their footprints,” he adds.
Those stronger businesses will be in an ideal position to grow after what many hope will be a short-lived market dip. “We are seeing buyer activity. Traffic to Coldwell Banker’s national web site set a record in April—up 22 percent from a previous high,” Gillespie says. “What this says is that buyers are out there.”
Baby boomers remain in their prime home buying years, while their children, the echo boomers, are coming and are already buying homes at an earlier age than their parents did. “Several reports also indicate that as the population heads towards 400 million, we are not building enough new homes to support this increase,” Gillespie says. All of those factors point to a very healthy real estate market over the long term, he adds.